What is Drawdown?
The peak-to-trough decline in an account's equity, usually expressed as a percentage of the peak.
Drawdown is the percentage decline from a peak equity point to a subsequent trough. If your account peaks at $10,000 and drops to $7,500 before recovering, your drawdown was 25%.
Daily drawdown is the same calculation but reset to the day's starting equity. If your account starts the day at $10,000 and at any point during the day drops to $9,500, your daily drawdown is 5%. Daily drawdown is the most common rule violation in prop firm Challenges — most firms cap daily DD at 4-5%.
Maximum drawdown (sometimes "total drawdown") is the worst peak-to-trough since the account's inception or its most recent high-water mark, depending on the firm's rules. Prop firms typically cap max DD at 8-12%. Both DD figures are calculated on EQUITY (including unrealized P&L), not just balance — meaning open losing positions count even if you haven't closed them.